How can I manage to TLH?

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Topic Author
pnw_guy
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Joined: Sun Feb 28, 2021 12:11 pm

How can I manage to TLH?

Post by pnw_guy »

I'm looking to do some tax loss harvesting in my brokerage account. However, I'm unsure what's the easiest way to do so and avoid a wash sale. My ideal portfolio is a two fund portfolio: Total US Stock Market and Total International Stock Market. In practice, it hasn't worked out that way for various reasons (e.g., options offered by my employer's 401K plan). However, I'd tried to get as close as possible in all of my accounts - Roth IRA, Taxable Brokerage, 529, 401K, and HSA. My exact holdings are below.

Roth IRA:
VTIAX
VTSAX

Brokerage Account
VTI
VXUS
VOO
* VOO was purchased due to the share price matching what we had to invest at different time points

Child's 529
Total International Stock Market
Total US Stock Market
* I don't know the tickers for these; Vanguard's 529 interface is confusing

401K
Vanguard Institutional 500 Index Trust
Vanguard Total International Stock Index Trust
Vanguard Extended Market Index Trust
* I don't know the tickers for these; they don't show on my employer's 401K website

HSA
Vanguard Total Stock Market Institutional
* I don't know the ticker; it doesn't show on my employer's HSA website

My question: Given my target of a two fund portfolio (US Total Stock and International Total Stock), what is the easiest way for me to execute TLH in my brokerage account? Virtually my entire brokerage account is underwater and the $18K in loses seems worth harvesting. However, for the life of me I can't figure out the easiest way to do so without triggering a wash sale.

I now know it's best to keep different funds in tax advantaged and brokerage accounts, but I need immediate help to figure out how to harvest my loses! Thank you!
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FiveK
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Re: How can I manage to TLH?

Post by FiveK »

Are you willing to hold something similar - but not substantially identical - to those funds?
CFM300
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Re: How can I manage to TLH?

Post by CFM300 »

pnw_guy wrote: Tue Jun 28, 2022 9:38 pm I can't figure out the easiest way to do so without triggering a wash sale.
What exactly is the problem? Just use other funds. Some options:

Vanguard Large-Cap ETF (VV) or
Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX)
...
Vanguard FTSE All-World ex-US ETF (VEU) or
Vanguard FTSE Developed Markets ETF (VEA) with or without...
Vanguard FTSE Emerging Markets ETF (VWO)
Topic Author
pnw_guy
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Re: How can I manage to TLH?

Post by pnw_guy »

CFM300 wrote: Tue Jun 28, 2022 9:53 pm
pnw_guy wrote: Tue Jun 28, 2022 9:38 pm I can't figure out the easiest way to do so without triggering a wash sale.
What exactly is the problem? Just use other funds. Some options:

Vanguard Large-Cap ETF (VV) or
Vanguard Tax-Managed Capital Appreciation Fund Admiral Shares (VTCLX)
...
Vanguard FTSE All-World ex-US ETF (VEU) or
Vanguard FTSE Developed Markets ETF (VEA) with or without...
Vanguard FTSE Emerging Markets ETF (VWO)
Maybe I don't understand wash sales.

As I see it, the issue is that I hold the following funds in my brokerage account: VTI, VXUS, VOO. If I sell them in my brokerage account, I can't buy something identically similar for 30 days. There's no easy way to pause purchasing these funds in my tax advantaged accounts (with the exception of my Roth). So the only way to avoid a wash sale is to do something drastic like change all of the funds in my tax advantaged accounts, right?
Topic Author
pnw_guy
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Re: How can I manage to TLH?

Post by pnw_guy »

FiveK wrote: Tue Jun 28, 2022 9:51 pm Are you willing to hold something similar - but not substantially identical - to those funds?
Yes. Something like VV would be a fine replacement for VTI in my opinion.
CFM300
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Re: How can I manage to TLH?

Post by CFM300 »

pnw_guy wrote: Tue Jun 28, 2022 10:00 pm There's no easy way to pause purchasing these funds in my tax advantaged accounts (with the exception of my Roth). So the only way to avoid a wash sale is to do something drastic like change all of the funds in my tax advantaged accounts, right?
Can't you just temporarily redirect your dividends to a money market account and temporarily change your automated purchases to some other funds (or also to a money market account)?
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FiveK
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Re: How can I manage to TLH?

Post by FiveK »

pnw_guy wrote: Tue Jun 28, 2022 10:01 pm
FiveK wrote: Tue Jun 28, 2022 9:51 pm Are you willing to hold something similar - but not substantially identical - to those funds?
Yes. Something like VV would be a fine replacement for VTI in my opinion.
Then you could at least sell the VTI with no wash sale concerns. How much of the $18K would that get you?
rkhusky
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Re: How can I manage to TLH?

Post by rkhusky »

CFM300 wrote: Tue Jun 28, 2022 10:19 pm
pnw_guy wrote: Tue Jun 28, 2022 10:00 pm There's no easy way to pause purchasing these funds in my tax advantaged accounts (with the exception of my Roth). So the only way to avoid a wash sale is to do something drastic like change all of the funds in my tax advantaged accounts, right?
Can't you just temporarily redirect your dividends to a money market account and temporarily change your automated purchases to some other funds (or also to a money market account)?
+1
If it is not worth the effort to temporarily stop contributions & dividends, rather than forgoing TLH’ing entirely, you could just accept the partial wash sales, but still claim most of your losses.
Topic Author
pnw_guy
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Re: How can I manage to TLH?

Post by pnw_guy »

FiveK wrote: Tue Jun 28, 2022 10:22 pm
pnw_guy wrote: Tue Jun 28, 2022 10:01 pm
FiveK wrote: Tue Jun 28, 2022 9:51 pm Are you willing to hold something similar - but not substantially identical - to those funds?
Yes. Something like VV would be a fine replacement for VTI in my opinion.
Then you could at least sell the VTI with no wash sale concerns. How much of the $18K would that get you?
I don’t think I could sell VTI without triggering a wash sale because of automatic contributions and dividends in the HSA and 529.
tashnewbie
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Re: How can I manage to TLH?

Post by tashnewbie »

To me it seems like the easiest way to set yourself up to TLH without wash sale concerns would be to change funds in the tax-advantaged accounts.

US stock: instead of a VTSAX (or a different share class like the trusts and institutional versions you hold), you could use VFIAX/VOO (S&P 500 index).

You'd need to make changes in the Roth IRA, 529, and HSA.

International stock: If you have other good fund options in the tax-advantaged accounts, you could make those changes. If not, you could coordinate TLH of VTIAX with the dividend schedules in the tax-advantaged accounts. I had to do that this year (I hold VTIAX in my 403b and taxable account and didn't have a viable alternative option in the 403b). Example: you got VTIAX dividends within the past 2 weeks in each account. You'd need to wait 30 days from the dividend payment dates to TLH in taxable. That means you have a window from roughly the end of July to the end of August to TLH. You have 4 roughly one-month windows each year to TLH this way, staggered around the quarterly dividend payments.

Once you're in the window to TLH, I would buy something like VFWAX/VEU as a replacement. You could also use VTMGX/VEA as another TLH pair. If you switch to ETFs, you have more options (e.g., IXUS). In prep for TLH, I called Vanguard and had them do a partial tax-free conversion of my VTIAX holdings to VXUS (ETF share class equivalent) and a complete conversion of my VFWAX holdings to VEU. Then I could easily TLH to non-Vanguard ETFs like IXUS.

Alternatively, you could just accept disallowed losses in relation to the dividends in the tax-advantaged accounts. That may be easier and tolerable, depending on the relative sizes of the accounts.
rkhusky
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Re: How can I manage to TLH?

Post by rkhusky »

Note that wash sales are on a share by share basis, not dollars. The replacement shares are matched in date order starting with the oldest shares that were sold for a loss. In most cases that creates a smaller wash in terms of dollars.

For example, if you sell 1000 shares for a loss and the dividend purchases 5 shares, you cannot claim the loss on the oldest 5 shares sold, but can claim the loss on the newest 995 shares.
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FiveK
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Re: How can I manage to TLH?

Post by FiveK »

pnw_guy wrote: Wed Jun 29, 2022 7:51 am I don’t think I could sell VTI without triggering a wash sale because of automatic contributions and dividends in the HSA and 529.
Dividends, even if set for automatic reinvesting, usually occur on predictable dates and thus their effect can be avoided.

See Why do you think wash sale rules don’t apply to a 401K? for more general discussion.
Topic Author
pnw_guy
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Re: How can I manage to TLH?

Post by pnw_guy »

Has the IRS taken an explicit stance on HSAs or 529s? Or are these in the same boat as 401K's?
Last edited by pnw_guy on Sat Jul 02, 2022 9:50 am, edited 1 time in total.
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FiveK
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Re: How can I manage to TLH?

Post by FiveK »

pnw_guy wrote: Sat Jul 02, 2022 9:19 am Has the IRS taken an explicit stance on HSAs or 529s? Or are these in the same boat as 401K's
Same as 401ks.
rkhusky
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Re: How can I manage to TLH?

Post by rkhusky »

pnw_guy wrote: Sat Jul 02, 2022 9:19 am Has the IRS taken an explicit stance on HSAs or 529s? Or are these in the same boat as 401K's?
The IRS is not required to explicitly address all account types. In the unlikely event of an audit, the taxpayer will need to prove that he is in compliance with the law.
Topic Author
pnw_guy
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Re: How can I manage to TLH?

Post by pnw_guy »

rkhusky wrote: Sat Jul 02, 2022 10:32 am
pnw_guy wrote: Sat Jul 02, 2022 9:19 am Has the IRS taken an explicit stance on HSAs or 529s? Or are these in the same boat as 401K's?
The IRS is not required to explicitly address all account types. In the unlikely event of an audit, the taxpayer will need to prove that he is in compliance with the law.
That wasn't the question. The question was whether they've accounts have been explicitly named.
MnD
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Re: How can I manage to TLH?

Post by MnD »

Brokerage Account
Sell VTI, VXUS, VOO
Buy SCHB, IXUS

You don't own and aren't buying VTI, VXUS and VOO in any other accounts.
In fact you don't have any other ETF's at all in other accounts. Dozens of differences.

SCHB and IXUS track different indices than VTI and VXUS along with dozens of other differences.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
cowbman
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Re: How can I manage to TLH?

Post by cowbman »

I usually switch out between the competitors based on my other holdings. I've recently had SCHB, sold and bought VTI. VTI is down, it's been over 30 days, so back to SCHB. I considered ITOT.
rkhusky
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Re: How can I manage to TLH?

Post by rkhusky »

pnw_guy wrote: Sat Jul 09, 2022 12:43 pm
rkhusky wrote: Sat Jul 02, 2022 10:32 am
pnw_guy wrote: Sat Jul 02, 2022 9:19 am Has the IRS taken an explicit stance on HSAs or 529s? Or are these in the same boat as 401K's?
The IRS is not required to explicitly address all account types. In the unlikely event of an audit, the taxpayer will need to prove that he is in compliance with the law.
That wasn't the question. The question was whether they've accounts have been explicitly named.
No, the IRS has not explicitly exempted HSA’s or 529’s (or 401k’s) from the wash sale law, which is what is required to ignore them in regards to wash sales.
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